The spectre of higher interest rates was raised yesterday by new figures showing far stronger than expected lending and monetary growth last month. Michael Dicks, an economist at investment bank Lehman Brothers, said: "This is another plank in the argument for interest rates to go up sooner rather than later."

Financial markets expect the cost of borrowing to start rising by the autumn, a timetable that could be embarrassing for the Government.

Total lending by banks and building societies amounted to pounds 5.9bn last month, with the big banks reporting a further rise in loans to industry though mortgage lending remained flat.

The British Bankers' Association said borrowing by manufacturing industry at pounds 365m was the highest for a year. There was also record demand for pounds 1.4bn of funds by leasing companies.

Martin Hall, director general of the Finance and Leasing Association, said this was consistent with members' reports of a strong pick-up in investment demand, particularly for inward investment and infrastructure projects.

Growth of the broad money measure, M4, remained in double digits at 10.1 per cent compared with 10.2 per cent in February. It has been running above the Government's 3-9 per cent target range for the past five months.

Eddie George, Governor of the Bank of England, warned the Chancellor of the Exchequer last month that rates might have to be raised again if monetary growth did not moderate. Mr Clarke described the strong growth in M4 as "puzzling".

Economists at the Bank are drafting next month's Inflation Report, which will pass a verdict on whether the Chancellor will meet his inflation target.

February's report concluded that this was "more likely than not" but most subsequent economic statistics have been buoyant.

The CBI's quarterly trends survey, due today, and retail sales figures on Thursday will be scrutinised for further evidence of a pick-up in the economy.

The launch of the gilts repo market on 1 January has increased the money supply and lending figures by several billion pounds a month.

Yet even excluding this effect the underlying rate of broad money growth has nearly doubled in less than a year.

Many economists think this is not a sign of direct inflationary pressure because the takeover boom is behind the surge. For example, about pounds 1.75bn of the March increase in borrowing was financing for Granada's takeover of Forte.

However, Professor Tim Congdon of Lombard Street research, a member of the Treasury's panel of "wise persons", said: "There are classic signals of monetary excesses."

Institutional investors flush with cash were bidding up shares, land and property prices, he said. Shares prices are at near-record levels, while land rose 29 per cent in value last year and has climbed since then according to estate agents Savills.